Google said Thursday that in coming weeks it will release its answer to ChatGPT, an AI chatbot that’s challenging the company’s core search business. The announcement came as parent company Alphabet reported gloomy fourth-quarter financial results.
Alphabet’s profit fell by more than a third as the wider ad market contracted over broad economic concerns. But AI technology investments remain key to its long-term plans, including work on large language models, an artificial intelligence technology Google helped pioneer.
“In the coming weeks and months, we’ll make these language models available, starting with LaMDA, so that people can engage directly with them,” CEO Sundar Pichai said on a call detailing Alphabet’s financial results.
Google will focus on responsible AI, Pichai said, an important point given the problems with bias and wrong answers the technology can produce. He pledged to bring new AI tools not just to search but also to developers, businesses and Alphabet’s own operations to increase efficiency.
Alphabet reported net income of $13.6 billion, or $1.05 per share, on revenue of $76 billion for the fourth quarter of 2022. Analysts, on average, expected the company to post earnings of $1.19 per share, according to Yahoo Finance. Alphabet’s profit fell 34% compared to last year’s results.
“We are going to be bold, responsible and focused,” Pichai said. “A healthy disregard for the impossible has been core to our company culture from the very beginning.”
Alphabet said it’ll take a restructuring charge of between $1.9 billion and $2.3 billion in the first quarter of 2023 after January job cuts that hit 12,000 workers.
Alphabet’s massive Google search operations, fueled by ads that appear next to search results, remains core, but it’s only a part of the company’s advertising business. Overall, Google’s fourth-quarter ad revenue dropped 2%, from $69.4 billion in 2021 to $67.8 billion.
No part of Google’s ad business was untouched. Search ads dropped from $43.3 billion to $42.6 billion, YouTube ads dropped from $8.6 billion to $8 billion, and Google-placed ads on other websites dropped from $9.3 billion to $8.4 billion.
“Google closed the year in a very different place than it was in this time last year. For the second quarter in a row, Google has missed analyst expectations, eking out just 1% growth year over year,” said Insider Intelligence analyst Evelyn Mitchell. “These results, from a company as large and influential as Google, do not bode well for the rest of the digital advertising industry.”
Google’s stock fell 4% in after-hours trading, to $104 per share.
The company is clearly concerned about the economic climate. “We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to deliver long-term, profitable growth,” Alphabet and Google Chief Financial Officer Ruth Porat said in a statement.
Employee pay is a major factor in expenses. Alphabet employment increased from 156,500 in the fourth quarter of 2021 to 190,234 in 2022. Porat said Google will slow the rate of hiring in 2023.
“Operating expenses were $22.5 billion, up 10%, reflecting an increase in R&D expenses, primarily driven by headcount growth, followed by an increase in G&A expenses, primarily reflecting an increase in charges related to accrued legal matters,” Porat said.
Though Google has thrived financially for years from search and other ads, it faces new competitive challenges. TikTok has drawn video creators and a big audience that might otherwise have stuck with YouTube, and the ChatGPT AI chatbot has shown there are new ways to search for information online. In response, Google has elevated Shorts on YouTube, saying the feature is now up to 50 billion daily views, up from 30 billion last spring. It’s also integrated more short-form videos into search results.
Apart from Shorts, Google is aiming to capitalize on its NFL Sunday Ticket deal and hopes it’ll help grow the company’s subscription business, whether it be on YouTube TV or as an à la carte deal. Philipp Schindler, Google’s chief business officer, also touted opportunities creators will have in developing both short- and long-form content around football.
Google also faces a Justice Department that is suing the search giant over its dominance in online advertising. Google pointed to legal spending as a notable factor in its increased expenses.
Google itself has been taking increased austerity measures, cutting back on spending and reportedly putting its moonshot projects under more profit scrutiny. The company cut 15% of its workforce from its life sciences arm, Verily, in January. Chief Executive Sundar Pichai also asked employees to help him on his so-called “simplicity sprint” during an all-hands meeting in July. He aimed to crowdsource ideas from staff to help streamline Google’s processes.
With economic and inflation concerns, Big Tech has cut jobs. In addition to Google’s cuts, Microsoft said it’s laying off 10,000 workers, Amazon cut 18,000 jobs, and Netflix and Facebook parent Meta went through layoffs in 2022.
Even with these layoffs, many such companies are bigger than they were before the pandemic. Apple seems to be the only major player that’s avoided layoffs, though CEO Tim Cook did take a 40% pay cut.
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